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Can David Zaslav’s new Warner Bros. Discovery deals work?

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Merging is always the easy part. The companies are usually willing to join ­forces. Bankers and lawyers are incentivized to get the deal done. Plus the media loves a good M&A deal with photo ops of high-fiving CEOs and their grand plans to make history through the process of creative destruction.

But then comes the heavy lifting: Successfully combining two often very different companies with different corporate cultures and creating shareholder value. I’ve been around this business long enough to know that there’s lots of destruction in big-time M&A.

Deals crash and burn at least as much as they pan out, maybe more. And what a racket it is for Wall Street, which gets paid even when their work ultimately produces failure on a monumental scale. David Zaslav’s Warner Bros. Discovery might be the next one to fail for reasons that will soon become apparent.

Consider the once mighty GE, a conglomerate built on theories about how bigger is better. Until it became crystal clear the conglomerate wasn’t living up to its hype and needed to be broken up as shares fell to near penny-stock territory. The bankers who constructed those ugly acquisitions still haven’t spent all the fees they generated on their ill-fated dealmaking.

Then there are the travails of Citigroup. The 1998 mega-deal merged the Travelers Group investment bank and insurance giant with commercial-banking icon Citicorp. It was based on the premise that a financial colossus could make money cross-selling investments and traditional banking products to large institutions and individuals.

Critics are mixed on whether his merger plan will be successful.
Zaslav is looking for $3 billion in post-deal savings this year.
SOPA Images/LightRocket via Gett

In retrospect: Not really. The cultures of the businesses never quite meshed. (Banking king Jamie Dimon was even ousted in the chaos.) The cross-selling “synergies,” as bankers call them, didn’t really materialize either, at least not enough to make up for all the bad stuff.

Citigroup is still with us but only because of the generosity of the federal government and the American taxpayer: It was one of the most bailed-out banks during the 2008 financial crisis.

Mother of all fiascos

Now go back in your history books and look up the AOL Time Warner merger fiasco. For my money, there is probably no greater example of the destruction of shareholder value built upon a mountain of banking fees and failed promises of synergistic coupling than this dumbo combo.

The $165 billion deal was announced with much fanfare in January 2000. It featured high-fiving CEOs and promises to set the world on fire by cross-selling old media (Time Warner’s magazines, cable programs, CNN, HBO, etc.) with new media (AOL’s then-popular Internet portal).

That sounded good amid the irrational exuberance of the online bubble. When the bubble popped, so did the company’s value proposition. Then came the great ­unwinding of the company’s various assets.

What was left, Time Warner — comprised of HBO, CNN, Warner Bros. Studios, TNT and Turner Sports — was defenestrated in 2016 as well.

The latest sucker, AT&T, bought the company for $85.4 billion, promising shareholders they would make the numbers work by using AT&T’s mobile and broadband distribution to sell Time Warner’s programming (more synergies).

But the telecom geeks at AT&T really never liked the entertainment types at Time Warner (and certainly didn’t understand the business). With shares getting crushed and costs rising, they turned to Wall Street once again, unloading Warner to Zaslav’s Discovery Inc. to create a new media behemoth, Warner Bros. Discovery.

'Batgirl' Leslie Grace | CREDIT: LESLIE GRACE/INSTAGRAM
The “Batgirl” movie was canceled before it ever was released for streaming in an attempt to save money.
CREDIT: LESLIE GRACE/INSTAGRAM

The deal would finally (hopefully) capture those elusive synergies, since Zaslav knows how to make various media properties, in this case scripted and unscripted content — HBOs “Game of Thrones” and Discovery’s Food Network — work as one. Warner Bros. Discovery was also born with the size and scale to compete with Disney and Netflix in the streaming wars, shareholders were told.

Even so, with size comes lots of debt that needs to be slashed. There’s $55 billion worth sitting on Zaslav’s financial statements like a pile of bad scripts. Competition is fierce over its streaming strategy — the alleged future of programming that isn’t making as much money as insiders hope.

And yes, those synergies have been hard to find since Zas — as he’s known in media circles — formally took over the new company earlier this year. That is why his stock has been cratering. Warner Bros. Discovery last week announced a $3.41 billion second-quarter loss.

Swinging a heavy ax

Zaslav is looking for $3 billion in post-deal savings. First to go was the CNN+ streaming service, as these pages reported. A big-budget likely flop, “Batgirl,” a woke reset of the DC superhero series, was canceled before it could lose Zas even more money than the tens of millions already spent. As I was first to report last week, he’s merging his streaming platforms HBO Max and Discovery+. Layoffs will follow.

Of course, it’s too early to put Warner Bros. Discovery in the same bucket as AOL Time Warner and the rest of the failures mentioned above. And it’s hard not to root for Zas — he’s one of the few honest guys also good at his job in this lousy business.

And who knows? Maybe his streaming business might soon pick up. Suffice to say, the company’s bankers couldn’t care less because they will make money ­either way.

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SEC chair Gary Gensler rushing to unveil big changes amid FTX scandal

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You would think that with the FTX scandal still brewing and investors missing billions of dollars from their supposedly secured crypto accounts, Securities and Exchange Commission chair Gary Gensler would have so much on his plate, he wouldn’t have time to muck around in our capital markets, which are working just fine.

But sources tell me Gensler is doing just that — preparing to unveil plans for the biggest changes in about two decades to the way stocks are routed from buyers to sellers. If Gensler’s timing holds, he will announce (possibly this week) an open meeting for mid-December that will detail his plan to remake the nation’s $46 trillion stock market, as I first reported on Fox Business.

The idea is to jam out his proposed changes — and they’re pretty significant — before year’s end.

Why the rush? The word inside the SEC is that Gensler wants to get much of the work on it done before the new GOP Congress takes over Jan. 3. While a probe of Hunter Biden’s swampy business dealings is high on the list of the incoming committee chairs, Gensler knows he also has a target on his back for his ambitious — some would say zealous — progressive agenda at an agency that has a core mission of protecting investors from being ripped off by scammers.

The Gensler SEC has moved so far beyond this mission that he’s looking to score lefty points and join the Environmental Social Governance bandwagon by forcing companies to disclose non-financial metrics such as how they are reducing their carbon footprint.

The House Financial Services Committee, meanwhile, is intent on grilling Gensler on what he knew about the shenanigans of Sam Bankman-Fried, the Democratic megadonor under criminal investigation over the implosion of the crypto exchange FTX. The company is now in bankruptcy, while SBF, as he’s known, remains in the Bahamas.

Securities and Exchange Commission, Chairman Gary Gensler testifies before a Senate Banking, Housing, and Urban Affairs Committee hearing on "Oversight of the U.S. Securities and Exchange Commission" on Tuesday, Sept. 14, 2021, in Washington.
If Gensler’s timing holds, he will announce (possibly this week) an open meeting for mid-December that will detail his plan to remake the nation’s $46 trillion stock market
Bill Clark/Pool via AP

Billions missing

As this column goes to press, countless billions in customer money remain missing, likely gambled away in Bankman-Fried’s side hustle of a prop-trading fund.

Here’s where things get interesting: Gensler met with SBF months before the blowup. The SEC had additional meetings with the fallen crypto bro’s people and business partners who were looking to start a commission-approved exchange. GOPers want to hear how all this occurred ­under the nose of Wall Street’s ­so-called top cop.

Market structure, meanwhile, hasn’t really caught the full attention of the incoming 118th Congress and its new GOP majority yet, but it should. The way we buy and sell stocks, the so-called plumbing of the market, is often taken for granted for the simple reason that it works pretty seamlessly even if the process is pretty complex.

It’s more complicated than just a bunch of guys on the New York Stock Exchange screaming out bids to match buyers and sellers.

For starters, most of those guys are gone, replaced by computers that can match orders in nanoseconds. The main public stock markets, the NYSE and the Nasdaq, aren’t the only game in town and are in competition to match buyers and sellers with private exchanges and market makers, companies like Citadel Securities and Virtu Financial. They’re armed with highly efficient trading machines that can match orders cheaply and still skim a bit and make a profit. It’s why we have low-cost and, in the case of Robinhood, no-fee trading platforms.

The system isn’t perfect, of course (see what happened during the early stages of the so-called meme-stock craze of 2020-21). There are outages and price discrepancies due to computer errors. But it works pretty well, and by most measures small investors benefit greatly from better execution and lower trading costs — just the way the SEC intended the last time it instituted changes.

FTX founder Sam Bankman-Fried
Sam Bankman-Fried is under criminal investigation over the implosion of the crypto exchange FTX.
FTX/Handout via REUTERS/File Photo

Anything can be improved — but should it?

The main thrust of Gensler’s proposal, according to people briefed on it, could cost retail investors billions of dollars. I don’t have all the details, but broadly he wants trades made by small investors to be routed separately into various public auctions, presumably run by the NYSE or Nasdaq — a change that would significantly reduce competition that the SEC intended. His hypothesis is that there’s nefarious stuff going on in those private venues where ­rip-offs might be going down.

What are those rip-offs? Gensler hasn’t really said. Do we have evidence that cheap or no-fee discount brokers are covering up hidden costs on execution performed by market makers? No.

Looking for headlines

So why is Gensler looking to fix what isn’t broken? Some people in the markets say he’s merely looking for headlines and to curry ­favor with the Wall Street-hating progressive Sen. Elizabeth Warren, who has a big say in President Biden appointments for economic roles in the administration. Gensler is eyeing treasury secretary when Janet Yellen steps down next year as expected.

Others say he really does think Wall Street is a sewer of corruption. Maybe we will find out more at the SEC’s next open meeting, or maybe Gensler will drop his fixation with fixing something that’s not broken and realize his time is better spent finding those countless billions still missing from those FTX customer accounts.

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World Cup fans choose party city Dubai over buttoned-down Qatar

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Football fan Chris Leek was born in 1958, the last time Wales qualified for the Fifa World Cup. “All I ever wanted was to see Wales in the World Cup — now I can be happy for the rest of my life,” he said of the principality’s participation in this year’s tournament in Qatar.

Leek plays alto saxophone with The Barry Horns, a brass band made up of 11 Welsh football fans. Seven of them have travelled to the Gulf to play at Wales’ matches in Qatar, not only to try to galvanise the crowd with their music but also to promote Welsh identity and independence from the UK.

But like thousands of other supporters, they have based themselves in nearby Dubai, the regional trade hub in the United Arab Emirates, making the tiring day-long trip to the Qatari capital Doha via hour-long shuttle flights connecting the cities during the tournament.

Fans from the participating countries have opted for Dubai’s lively nightlife scene over Doha’s buttoned-down atmosphere. Qatar’s last-minute decision to ban alcohol sales around the stadiums only served to underline the country’s more conservative culture.

The party atmosphere starts at Dubai’s two airports, where outlets have been so busy this week that some ran out of McDonald’s and Heineken beer.

Football fans watch a match between Argentina and Saudi Arabia on a large screen, at a fan zone in Dubai, United Arab Emirates © Hussein Malla/AP

Across the city, fan zones have been bustling with supporters from every nation, reflecting the diverse nature of Dubai’s expatriate population, which makes up 90 per cent of the 3.5mn population.

In the downtown financial centre, bankers have been swapping suits for football shirts to watch matches at its fan park, where companies have been renting out lounges at $5,500 for 20 people, which includes food and booze.

With 60 daily shuttle flights between Dubai and Doha, up to 350,000 people could be transported from the region’s tourism hub throughout the tournament, which expects to host about 1.5mn visitors.

The deluge of fans comes in the middle of Dubai’s tourism season, when visitors flock there in search of winter sun. The government-owned airport operator says passenger throughput has eclipsed pre-pandemic numbers, with traffic surpassing 6mn a month during the third quarter. Dubai’s Emirates airline has recorded a 228 per cent rise in passengers in its first-half results.

“Dubai has extremely strong demand at this time of year and I’m sure there will be people travelling through Dubai to the World Cup,” said Issam Kazim, chief executive of Dubai Tourism. “This tournament will be a boost for the entire region.”

But officials say the number of fans who are visiting the emirate with the sole purpose of catching games in Qatar is likely in the low tens of thousands, or the equivalent of an uptick in hotel occupancy of up to three percentage points. Many match tickets have been sold to expatriates in the Gulf, including some of the 100,000-plus Britons living in the UAE.

Many hotels are now operating at near full capacity anyway as travel demand has soared. In September, the last available statistics, average occupancy at the roughly 140,000 available rooms across the emirate was 71 per cent with the average daily rate around a quarter higher than 2019.

Dubai-based Expat Sport has brought in about 2,000 fans through its hotel and flight packages for supporters who have tickets to attend games in Qatar. Fans from South America, India and the UK are staying in the popular Palm Island district of Dubai, shuttling to and from Qatar on flights booked by the company, which also sells World Cup hospitality packages for UAE-based expatriates.

“There’s general excitement, it’s suddenly here,” said Sue Holt, executive director of the sports tourism group. “People who weren’t thinking about it are saying ‘why don’t we just go’.”

For visitors such as The Barry Horns’ founder Fez Watkins, Dubai also offered a chance to visit “amazing” clubs where the blend of south Asian and Arabic-influenced rhythms was “absolutely, mind-blowingly good”.

Local well-wishers have been lending the band sound equipment and drums for the matches in Doha as well as their gigs for expatriate enthusiasts at hotels and events at the British embassies in Qatar and Dubai.

The group, formed in 2011 when the national team’s fortunes were at a low point, plays tunes such as the military march “Men of Harlech” and Depeche Mode’s “Just Can’t Get Enough”, to raise the morale of the “Red Wall” of Welsh fans decked out in national colours and bucket hats.

“There have been a few hassles, but it’s been great overall — arriving at the airport with the fans from likes of Mexico and Argentina has been a joyful World Cup experience,” said Watkins.

“The World Cup has always been like a party we were never invited to. And now we’re finally part of it.”

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Whole Foods upsets Maine politicians with decision to stop selling lobster

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Whole Foods’ decision to stop selling Maine lobster has been cheered by environmental groups, but made politicians steaming mad.

The high-end grocery giant took lobster from the Gulf of Maine off the menu at hundreds of its stores nationwide, citing a pair of sustainability organizations yanking their support for the US lobster fishing industry.

The organizations, the Marine Stewardship Council and Seafood Watch, said they were concerned about the risks fishing gear posed to the endangered North Atlantic right whales. The whale population is estimated to be around 340.

The decision, revealed last week, has drawn ire from Maine, which boasts the nation’s largest lobster fishing industry.

In a joint statement, Gov. Janet Mills and the state’s four congressional legislators voiced their concern about the impact on local fishermen’s livelihoods and defended the state’s fishermen, saying they’ve been committed to sustainability and protecting right whales.

Whole Foods cited a pair of sustainability organizations yanking their support for the nation’s lobster fishing industry in their decision to stop selling the crustacean.
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“The Marine Stewardship Council, with retailers following suit, wrongly and blindly decided to follow the recommendations of misguided environmental groups rather than science,” the politicians said.

Whole Foods said that it is “committed to working with suppliers, fisheries, and environmental advocacy groups as [the situation] develops.”

With Post wires.

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